Meridian (MRBK) - 2024 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1 Financial Statements (Unaudited) This section presents Meridian Corporation's unaudited consolidated financial statements for Q1 2024, including balance sheets, income, comprehensive income, equity, and cash flow statements, with detailed notes Consolidated Balance Sheets Total assets grew to $2.29 billion as of March 31, 2024, from $2.25 billion at year-end 2023, driven by a net increase in loans, funded by an increase in total deposits to $1.90 billion Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $2,292,923 | $2,246,193 | | Cash and cash equivalents | $23,027 | $56,697 | | Loans, net | $1,933,144 | $1,873,699 | | Total Liabilities | $2,132,987 | $2,088,171 | | Total deposits | $1,900,696 | $1,823,462 | | Borrowings | $145,803 | $174,896 | | Total Stockholders' Equity | $159,936 | $158,022 | Consolidated Statements of Income For Q1 2024, net income decreased to $2.7 million from $4.0 million in Q1 2023, primarily due to increased interest expense outpacing income growth and a doubled provision for credit losses Q1 2024 vs Q1 2023 Income Statement (in thousands, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Interest Income | $16,609 | $17,677 | | Provision for credit losses | $2,866 | $1,399 | | Non-interest income | $7,984 | $6,638 | | Non-interest expense | $18,174 | $17,789 | | Net Income | $2,676 | $4,021 | | Diluted EPS | $0.24 | $0.34 | Consolidated Statements of Comprehensive Income Total comprehensive income for Q1 2024 was $3.1 million, down from $5.7 million in Q1 2023, including $2.7 million net income and $0.5 million other comprehensive income from unrealized gains on interest rate swaps Comprehensive Income Summary (in thousands) | Component | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Income | $2,676 | $4,021 | | Total Other Comprehensive Income | $473 | $1,670 | | Total Comprehensive Income | $3,149 | $5,691 | Consolidated Statements of Stockholders' Equity Stockholders' equity increased to $159.9 million by March 31, 2024, driven by $2.7 million net income and $0.5 million other comprehensive income, partially offset by $1.4 million in dividends - Key changes in stockholders' equity for Q1 2024 included $2.7 million in net income, $0.5 million in other comprehensive income, and $1.4 million in dividends declared ($0.125 per share)[19] Consolidated Statements of Cash Flows Cash and cash equivalents decreased by $33.7 million in Q1 2024 due to cash outflows from operating ($1.7 million) and investing ($78.7 million) activities, partially offset by financing inflows ($46.8 million) from increased deposits Cash Flow Summary (in thousands) | Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,706) | $(11,400) | | Net cash used in investing activities | $(78,728) | $(84,198) | | Net cash provided by financing activities | $46,764 | $165,710 | | Net change in cash and cash equivalents | $(33,670) | $70,112 | Notes to Consolidated Financial Statements (Unaudited) This section details accounting policies, securities, loan portfolio, credit losses, borrowings, fair value, and segment reporting, including investment portfolio unrealized losses, nonaccrual loans, and allowance for credit losses - The investment portfolio's unrealized loss position of $11.3 million at March 31, 2024, is primarily attributed to changes in market interest rates rather than credit impairment[37] - Nonaccrual loans increased to $38.2 million as of March 31, 2024, from $33.8 million at December 31, 2023[46][47] - The allowance for credit losses (ACL) increased to $23.2 million at March 31, 2024, from $22.1 million at year-end 2023, with a provision of $3.4 million and net charge-offs of $2.3 million during the quarter[56] Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 financial results, highlighting a decrease in net income to $2.7 million due to net interest margin compression and higher credit loss provisions, covering asset quality, income, expenses, balance sheet, capital, and segment performance - Net income for Q1 2024 was $2.7 million ($0.24 per diluted share), down 33.4% from Q1 2023, driven by increased interest expense and a higher provision for credit losses[140] - Net interest margin decreased to 3.09% in Q1 2024 from 3.61% in Q1 2023 due to deposit and borrowing repricing outpacing the repricing of interest-earning assets[140] - Total assets grew by 2.1% to $2.3 billion, primarily from a 3.3% increase in portfolio loans, funded by a 4.2% increase in total deposits[140] Net Interest Income Net interest income decreased by $1.1 million to $16.6 million in Q1 2024, as a $7.3 million increase in interest expense from higher deposit and borrowing costs more than offset a $6.3 million rise in tax-equivalent interest income Net Interest Income and Margin (in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Interest Income (tax-equivalent) | $16,691 thousand | $17,752 thousand | | Net Interest Margin (tax-equivalent) | 3.09% | 3.61% | - The increase in interest expense was primarily driven by rate changes, which accounted for a $4.9 million increase, while volume changes contributed $2.4 million[148] Provision for Credit Losses and Asset Quality The provision for credit losses increased by $1.5 million to $2.9 million in Q1 2024, driven by higher specific reserves and loan growth, leading to non-performing assets rising to 1.74% of total assets - The provision for credit losses increased to $2.9 million in Q1 2024 from $1.4 million in Q1 2023[57] - Net charge-offs were 0.12% of total average loans for Q1 2024, up from 0.08% in Q1 2023, with a large portion coming from small ticket equipment leases[154] - The allowance for credit losses to total loans held for investment (non-GAAP) was 1.19% as of March 31, 2024, slightly up from 1.17% at December 31, 2023[155] Non-Interest Income Total non-interest income increased by 20.3% to $8.0 million in Q1 2024, primarily driven by growth in mortgage banking, SBA loan, and wealth management income Non-Interest Income Components (in thousands) | Component | Q1 2024 | Q1 2023 | $ Change | | :--- | :--- | :--- | :--- | | Mortgage banking income | $3,634 | $3,272 | $362 | | Wealth management income | $1,317 | $1,196 | $121 | | SBA loan income | $986 | $713 | $273 | | Total non-interest income | $7,984 | $6,638 | $1,346 | Non-Interest Expense Total non-interest expense rose slightly by 2.2% to $18.2 million in Q1 2024, mainly due to increased professional fees for loan workout and system conversions, partially offset by reduced salaries and employee benefits Non-Interest Expense Components (in thousands) | Component | Q1 2024 | Q1 2023 | $ Change | | :--- | :--- | :--- | :--- | | Salaries and employee benefits | $10,573 | $11,061 | $(488) | | Professional fees | $1,498 | $823 | $675 | | Total non-interest expense | $18,174 | $17,789 | $385 | Balance Sheet Analysis Total assets increased by $46.7 million to $2.3 billion as of March 31, 2024, driven by 3.3% growth in portfolio loans, funded by a 4.2% increase in total deposits with a shift towards higher-yielding accounts - Portfolio loan growth was led by increases in commercial real estate ($25.5 million), commercial and industrial loans ($25.3 million), and construction loans ($16.6 million)[167] - Time deposits grew by $75.9 million (11.1%), while noninterest-bearing deposits decreased by $18.7 million (7.8%)[168] Capital and Liquidity The Corporation remains well-capitalized with a Tier 1 leverage ratio of 9.42% and adequate liquidity, including access to approximately $1.0 billion from various sources Bank Capital Ratios | Ratio | March 31, 2024 | Well-Capitalized Minimum | | :--- | :--- | :--- | | Tier 1 leverage ratio | 9.42% | 5.00% | | Total risk-based capital ratio | 10.95% | 10.00% | - Tangible book value per share (non-GAAP) increased to $13.96 from $13.78 at year-end 2023[170] - The company has a maximum borrowing capacity with the FHLB of $656.0 million as of March 31, 2024[173] Item 3 Quantitative and Qualitative Disclosures about Market Risk The Corporation manages interest rate risk using simulation models, projecting net interest income to increase by 0.73% with a 100 basis point rate rise and decrease by 1.85% with a 100 basis point rate fall, indicating an asset-sensitive balance sheet Net Interest Income Sensitivity (12-Month Simulation) | Rate Change | % Change in NII (as of Mar 31, 2024) | | :--- | :--- | | +200 bps | +1.12% | | +100 bps | +0.73% | | -100 bps | -1.85% | | -200 bps | -3.23% | - The economic value of equity (EVE) simulation shows a negative effect from both increases and decreases in rates, with the impact worsening as rates move downward[192] Item 4 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the Corporation's disclosure controls and procedures were effective as of March 31, 2024[195] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, the Corporation's internal controls[196] PART II OTHER INFORMATION Item 1 Legal Proceedings The Corporation reported no legal proceedings during the period - None[199] Item 1A Risk Factors There have been no material changes to the risk factors previously disclosed in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes from the risk factors disclosed in the 2023 Form 10-K[199] Item 2 Unregistered Sales of Equity Securities and Use of Proceeds The Corporation reported no unregistered sales of equity securities or use of proceeds during the period - None[200] Item 5 Other Information The Corporation reported no other information required to be disclosed under this item - None[203] Item 6 Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the Principal Executive Officer and Principal Financial Officer, and XBRL data files - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32) and XBRL interactive data files[206]